Automation makes regulatory compliance on Insider Trading a lot easier for businesses

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Today, when you search the internet on any information related to “Insider Trading”, you’ll find instances of violations being reported, few of them being proved and punished. Many of the publicly listed companies are under constant regulatory watchlist and under the lens for insider trading malpractices.

These cases highlight not only a need to educate employees on the pitfalls of indulging in insider trading but at the same time it becomes necessary to have robust mechanisms in place to mitigate the compliance risk for the company.  

SEBI is increasingly making stringent rules and regulations to prohibit Insider trading. The recent amendment (April 2019) focuses on the management of UPSI (Unpublished Price Sensitive Information) with a special focus on digitisation and automation.  Further, the onus of ensuring the implementation of these rules and regulations lies with the senior management and compliance teams of respective companies. 

Three types of companies fall under the purview of insider trading regulations: 

1. Public Listed Entities (non Financial Intermediary)

2. Unlisted Financial Intermediary

3. Public Listed Financial Intermediary 

The applicable policies for Financial Intermediaries is much broader and complex than for Public Listed Entities. Considerable time is devoted to manually managing and tracking these activities which comes with the cost on Compliance.

Automation of activities eases Compliance 

Automation typically brings in 1.5 times more efficiency when a manual process is replaced and frees up time for people to focus on more critical and decision making activities. Moreover, access to computers and smartphones is almost universal and all companies are connected to their employees digitally. Also, in the Post Covid era, many employees are working from remote locations which makes it prudent to focus on automating compliance processes.

Hence robust automation is a key to effective and successful implementation of SEBI Insider Trading regulations. Imagine an automation that can do the following activities for you:

Managing Central data repository and Audit Trails

The main focus of any regulatory compliance is to ensure that data is available as and when required for Internal/ External audit. In a manual mode of working, it becomes difficult to collate data under one location. 

The primary focus of any automation would be to ensure everything is available in a central repository with an ability to query the data as and when required. Our past experience states that this would add more than 30 to 40% efficiency to the process of tracking PIT information. 

Ease of tracking and monitoring on the go

Any manual process requires physical presence and a lot of paperwork. This leads to requirements of physical presence of paper for an effective system. In today’s age where offices are spread across locations or when employees work from remote locations, it becomes a challenge to continue managing the processes in the old way. 

Automation ensures all the relevant people are able to access and report the required information from wherever they are.  

Monitor, Learn, and Improve

To make improvements to any process, it is very important to analyse the data generated in the current process, measure efficiency and effectiveness which could in turn lead to ideas for future improvements. This can only be achieved through digitisation and centralisation of the data and creating analytical reports.

Standardised Dashboards and Auto reminders

An automated system should give relevant dashboards as well as reminders to relevant people to ensure that nothing remains pending. It's a constant effort for the Compliance team to manually keep checking and reminding different employees of their reporting requirements on a regular basis. 

An automated solution would be able to do this activity seamlessly to ensure better compliance to the PIT process. 
However, many companies are reluctant to automate since there is a direct cost of acquiring and managing solutions. But regulatory compliance will keep getting more and more complex and managing them manually will turn out to be a costly affair as years pass by. 

Also, the global nature of today’s organisations and remote working dictates that “Automation is the future” to manage compliance, including Prohibition of Insider Trading.

The article is authored by Tejas Fadia - Head (Product, Consulting, Implementation), Infomatics Services